Here’s our summary of key economic events overnight that affect New Zealand, with news equity markets are assuming China has an effective quarantine on their virus emergency.
But firstly for our readers outside New Zealand, today is Waitangi Day and a public holiday in all of New Zealand.
Elsewhere, there is an American non-farm payrolls report out this Saturday (NZT) and today the precursor ADP employment report was released, and it showed strong jobs gains. Most (81%) of these gains were in their service sector. If this holds, it will be the largest monthly gain since December 2014. But we should note that last month the ADP Report signaled a +202,000 gain that wasn’t reflected in the non-farm payrolls report (+145,000).
The widely-watched ISM services PMI was also released overnight for January and that was little-changed with a moderate expansion (55.5). The internationally-benchmarked Markit services PMI for the US was also out and puts their expansion a little lower (53.3) although that is a recovery.
The US trade balance in goods and services was released too, for December and the full calendar year, and as usual, it revealed data that was both ‘worse’ than the prior month and a bigger deficit than analysts were expecting. Same old evidence tariffs just don’t work. Their deficit with China for trade in both goods and services was -US$26 bln in December alone and US$346 bln for all of 2019. Both were only relatively minor declines on prior periods although they did constrain the calendar year deficit somewhat even if the December result was worse overall.
Signals from Singapore reveal they are getting ready to devalue their currency in response to the trade hit they are taking from the Chinese coronavirus. This comes after Hong Kong revealed its economy contracted sharply in 2019.
The number of cases the coronavirus is still rising, approaching 25,000 and the death till is approaching 500. But most are still in Hubei Province and it is becoming clear that the Chinese strategy is to sacrifice that province to save the rest of China, and the world. It is fearsomely ugly at ground zero with a complete shutdown.
As tough as it is on the people of Wuhan and surrounding cities, global equity markets approve, and are moving back up.
In mid-day trade, the S&P500 is up +0.9% today, following European markets that were up as much as +1.5% (Frankfurt) or as low as +0.6% (London). Yesterday, Tokyo ended up +1.0%, Hong Kong was up +0.6%, and Shanghai was up +1.3%. Locally, the ASX200 rose +0.4% while the NZX50 Capital Index was up +0.8%.
Globally, the world economy made a solid start to 2020 as output, new orders and employment rise at faster rates, and this was despite the onset of the Chinese virus.
It will need to because trade is under pressure and February won’t be an improvement. International airfreight ended 2019 with a -3.3% contraction and for the full year the Asia-Pacific region shrank -6.4%.
In Australia, the regulator RBA is considering requiring banks and credit card companies to offer a least-cost option to merchants for tap-on-go payments, like Eftpos. More than AU$500 bln in juicy fees are at risk, both for banks and especially Visa and Mastercard. The credit card companies pay virtually no tax on these fat revenues.
And staying in Australia, their chief central banker has acknowledged what has been an open secret for some time: low interest rates and easy money are incentivising investors to take on risk and driving equity and property valuations to extremes – in other words, a problem he was a part in making.
The UST 10yr yield will start at just under 1.65% and another strong +5 bps recovery a day. Their 2-10 curve is higher at +20 bps. But their 1-5 curve is still negative at -3 bps. Their 3m-10yr curve is positive, now +10 bps. The Aussie Govt 10yr is up further as welly, up +9 bps to 1.09%. The China Govt 10yr now at 2.89% and a +2 bps gain. And the NZ Govt 10 yr has moved up as well and will open at 1.33% and that is an +11 bps rise overnight.
Gold has risen today, up +US$6 to US$1,558/oz.
US oil prices are up about +US$1 today at just on US$51.50/bbl. The Brent benchmark is also up to just over US$55.50/bbl.
The Kiwi dollar is little-changed this morning at 64.7 USc. On the cross rates we are lower at just under 96 AUc. Against the euro we are still firmish at 58.8 euro cents. The net of these shifts leaves our TWI-5 just on 70.3.
Bitcoin is rising today, up nearly +4% at US$9,550. The bitcoin rate is charted in the exchange rate set below.
The easiest place to stay up with event risk today is by following our Economic Calendar here ».